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CBI Scotland wants more capital spending in areas such as housing and transport

The Scottish government should direct funds to the capital spending it wants, even if the Treasury refuses to relax spending restraints, says CBI Scotland.

The advice from the employers' organisation comes ahead of next month's draft Scottish budget.

It said Scottish ministers at Holyrood could re-direct more spending from services into capital.

The body also called for the use of private finance to boost spending on infrastructure to be further extended.

The organisation wants to see more competition to provide public services, suggesting ferries, hospital catering and cleaning, and GP doctor services, which have been subject to a controversial health service reform in England.

Citing advice which the Scottish government commissioned, it argued for council services to be opened to tender, including roads maintenance and customer contact centres.

The organisation said there should be no more than "a very modest" rise in public sector pay.

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Media captionIain MacMillan: "I think over time we have seen the costs of government in Scotland probably at a level that are too high, so that needs to come down."

Finance Secretary John Swinney is due next month to set out his draft budget for 2013-14, and the Budget Bill will then be scrutinised by MSPs during autumn and winter.

He said he remained hopeful the government could move into "a period of modest pay increases" in the public sector for 2013/14, having had two years of pay restraint.

Mr Swinney told BBC Scotland: "I'm working to deliver that because I think you have to strike a balance in many of these decisions between the exercise of restraint and actually recognising the difficulties that families are facing because of that self-same restraint."

The CBI advice is to ensure his budget focuses more than past ones on helping business get growth into the economy.

Iain McMillan, director of CBI Scotland, said: "Despite the fiscal stringency which will be required from the public purse over the next few years, there remains a pressing need for the devolved government to sustain investment in and support for the economy.

"The Scottish government should put economic growth at the very centre of its upcoming spending plans.

"A bolder approach to making savings and promoting competition is needed in order to keep business taxes down and protect important GDP-enhancing investments in infrastructure, skills development, and export support."

Austerity measures

The organisation continued to criticise the current year's budget for the increase in tax on larger retailers and on businesses with empty properties.

Business lobbies across Britain have been putting increasing pressure on the Treasury in London to relax austerity measures and improve capital spend to help get the economy back into growth.

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Media captionJohn Swinney: "We will retain Scottish Water in the public sector."

But CBI Scotland also repeated its concern that the UK government needs to continue pushing down on the deficit and rising government debt levels.

Its submission was supportive of the Scottish government on its support for manufacturing, on infrastructure projects, on freezing council tax and pegging business rates to the level set in Whitehall.

There was also backing for government education and skills strategies.

But CBI repeated its previous call for more graduate contribution to the cost of universities, whereas the Scottish government is committed to having no fees required from Scots who go to higher education.

The business lobby group submission said there should be a commitment to introduce no further business tax increases during the current spending cycle.

It was critical of plans to reduce the spending on planning departments, while proposing to increase planning application fees.

Flagship policies

On the costs of running government, it said that reductions should be a focus of the budget, helping "to minimise any reductions in economically important areas of spending".

The submission said: "With such a huge slice of public spending going on wages and related items such as pensions, the prospect of anything other than very modest pay rises in the public sector is simply unrealistic."

Commenting on spending on infrastructure projects, Mr Swinney: "The key duty that I have to do is that I can't spend money I don't have.

"In June I announced an extra £105m to invest in capital investment projects to support employment in Scotland.

"I put together that package by essentially making sure the money available to us in Scotland is directed most effectively to support economic growth.

"I continue to do that on a daily basis to identify how we can maximise resources for investment."